In a democracy, silence is not golden; it is condonance in the face of injustices; it is fear, where the thought of reprisal fosters control – Rodney A. Davis

Job growth improves, but pace leaves full employment 20 years away!

October’s employment report, released this morning by the Bureau of Labor Statistics, showed faster private sector employment growth than in recent months, 159,000, along with strong upward revisions to earlier data (+110,000). Other positive news was the unexpectedly modest jobs loss in state and local government (-7,000), although job losses in this sector will likely worsen in future months given state and local budget challenges. Even though October’s job growth is a step in the right direction, given the backlog of 14.8 million unemployed workers in this country, the pace of job growth is not strong enough to bring the unemployment rate down to pre-recession levels anytime soon. To give this some context: If the rate of job growth were to continue at October’s rate, the economy would achieve prerecession unemployment rates (5% in December 2007) in roughly 20 years. For the fourth straight month, the unemployment rate held steady at 9.6%.

Labor Force

The labor force dropped by 254,000 in October, pushing the labor force participation rate down from 64.7% to 64.5%. The labor force participation rate is far below its prerecession level of 66.0% in December 2007, so the pool of “missing workers,” i.e., workers who dropped out of (or didn’t enter) the labor force during the downturn, remains large. We can estimate its size in the following way. The labor force should have increased by around 3.9 million workers from December 2007 to October 2010, given working-age population growth over this period, but instead it has, astoundingly, stayed essentially flat (+35,000). This means that the pool of missing workers now numbers around 3.9 million. None of these workers are currently reflected in the official unemployment count, but as they enter or re-enter the labor force in search of work, this will contribute to keeping the unemployment rate high.

Hours and Earnings

The length of the average workweek increased slightly in October, from 34.2 to 34.3 hours, restoring it to its August level. It has seen very little growth since May, when the restoration of hours stalled out (its low point was 33.7 one year ago). Average hourly wages increased in October from $22.68 to $22.73, and have grown at a 2.5% annualized rate over the last three months. Weekly wages—a measure that combines the changes in hourly wages and average hours—increased slightly in October, from $775.66 to $779.64, and have grown at a 3.7% annualized rate over the last three months. These are both improvements over recent months, but paychecks will need to see faster growth than this to sustain consumer spending at its recent pace, especially given that the transfer payments in the Recovery Act, which is what has been supporting consumer spending for the last five quarters, are set to fade away in coming quarters unless policy makers pass legislation to extend them. Figure E of this Congressional Testimony by Josh Bivens shows dramatically how transfer payments have been propping up consumer spending during this downturn. One key transfer, extended unemployment insurance benefits, is set to expire at the end of this month. If extended UI benefits are allowed to expire, then it will be a significant drag on growth.

Long-term unemployment

The share of unemployed workers who have been unemployed for over six months basically held steady in October (increasing from 41.7% to 41.8%), though it is down substantially from its record high of 46% in May. The decline since May likely reflects workers dropping out of the labor force after exhausting unemployment insurance benefits. Extending unemployment insurance in a severe downturn, despite assertions to the contrary, can actually provide an impetus for workers to continue to look for work even in the face of very low chances of finding a job—if they stop looking, they’ll lose their unemployment insurance. . Despite the recent decline, the share of long-term unemployed remains one of the highest on record, with 6.2 million workers still unemployed for longer than six months. These dramatic figures are unsurprising given that there are still 4.6 unemployed workers per available job.

Underemployment

The “underemployment rate” (or the U-6 measure of labor underutilization) is a more comprehensive measure of labor market slack than the unemployment rate because it includes not just the officially unemployed, but also jobless workers who have given up looking for work and people who want full time jobs but have had to settle for part-time work (note, however, it does not include people who are underemployed in the sense that they have had to take a job that is below their skills, training, or experience level). This measure stayed essentially flat in October (decreasing by 0.1 percentage points to 17.0%). The number of involuntary part-time workers decreased by 318,000, offsetting part of the large September increases, while the number of “marginally attached” workers (jobless workers who have given up looking for work), increased by 51,000. In October, there were a total of 26.6 million workers who were either unemployed or underemployed.

Demographic breakdowns
All major groups have experienced substantial increases over this downturn, though men, racial and ethnic minorities, young workers, and workers with lower levels of schooling have gotten hit particularly hard.

In October, unemployment was 18.6% among workers age 16-24, 8.5% among workers age 25-54, and 7.3% among workers age 55+ (increases of 6.8, 4.4, and 4.1 percentage points, respectively, since the start of the recession in December 2007).
Unemployment was 15.7% among black workers, 12.6% among Hispanic workers, and 8.8% among white workers (increases of 6.7, 6.3, and 4.4 percentage points, respectively, since the start of the recession).
Unemployment was 10.4% for men, compared to 8.8% for women (increases of 5.3 and 3.9 percentage points since the start of the recession).
For workers age 25 or older, unemployment reached 10.1% for high school educated workers and 4.7% for those with a college degree (increases of 5.4 and 2.6 percentage points, respectively, since the start of the recession).
Industry sectors

Virtually all of the gains in private sector jobs were in service-providing industries—private service-producing industries added 154,000 jobs while good-producing industries added 5,000 jobs. Retail trade added 27,900, a big improvement over its performance in the last three months, in which it averaged an increase of 10,000 per month. Another bright spot was health care, adding 24,100 jobs, on par with what it added in the prior three months. Restaurants and bars again had a big month, adding 24,400 jobs. The biggest gainer of all was temporary help services, which added 34,900 jobs. It added around 23,000 in each of the prior two months.

Following the expiration of the homebuyer tax credit, construction growth was modest though positive in October, at 5,000 jobs. Manufacturing lost 7,000 jobs in October, its third straight month of declines after adding jobs for the first seven months of the year.

In the public sector, the shedding of jobs at the state and local level slowed, with state government employment remaining flat and local government employment dropping by 7,000. Given state and local government budget challenges, this improvement is likely going to be short-lived. Since their peak in August 2008, state and local governments have shed 407,000 jobs (-39,000 state, -368,000 local). Note that the effect of changes in temporary Census jobs is conspicuously absent from this report—after buffeting around the top-line payroll employment numbers for the last half-year, only 6,000 temporary Census jobs remained on payroll in September, almost all of which (5,000) were lost in October.

Conclusion

The labor market remains 7.5 million payroll jobs below where it was at the start of the recession in December 2007, and this number understates the size of the gap in the labor market by failing to take into account the fact that simply to keep up with the growth in the working-age population, the labor market should have added around 3.5 million jobs in the nearly three years since December 2007. This means the labor market is now roughly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007). To get down to the pre-recession unemployment rate within five years, the labor market would have to add around 300,000 jobs every month for that entire period.

Exit polls from Tuesday’s election reveal that what voters want is for Congress to create jobs and end high unemployment. Soon Congress will have a good opportunity to do just that. On November 30th, the federally funded extended unemployment insurance benefits are set to expire. These benefits serve two very useful purposes. One is to provide a lifeline to the unemployed and their families during the deepest and longest downturn since the 1930s. But importantly, these benefits also boost spending in the economy and therefore generate jobs. In the paper A Good Deal for All, we estimate that the continuation of unemployment insurance extensions through 2011 will create or save 723,000 full-time-equivalent jobs. With a jobs deficit of 11 million jobs and an unemployment rate of 9.6%, Congress must seize this opportunity.

—Research assistance by Kathryn Edwards and Andrew Green.

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